Will Europe Kill the E-Cigarette?

Even as conferees meeting at the Royal Society in London were hearing about how e-cigarettes could save millions of lives annually, European Community regulators in Brussels are drafting rules that would virtually ban their existence.

With Philip Morris International (NYSE: PM) finally planning the introduction of its own e-cig brand into the market next year, the timing of the news could not have been worse. Cigarette volumes are falling globally, and while Altria (NYSE: MO) and Lorillard (NYSE: LO) are raising prices to offset the decline, tobacco companies have been turning to e-cigs as a means of bolstering their bottom line. A move by the EU to ban them could turn up the pressure on their performance going forward.

Source: Totally Wicked E Liquid (USA).

E-cig manufacturer Totally Wicked got hold of the proposed regulations that, if implemented, would ban all refill liquids, refillable atomizers, and almost all flavors, while imposing arbitrary restrictions on nicotine levels. The company's CEO didn't mince words in condemning the proposal, as well as the actions by the pharmaceutical industry and the tobacco companies themselves:

What is absolutely clear is that these few individuals are attempting to destroy the utility of a truly remarkable product in the interests of perpetuating a sinister duopoly that is contrary to the interests of European public health and basic morality.

Despite the relative health benefits of e-cigarettes compared to their tobacco cousins, regulators can't seem to allow themselves to get out of the way of their proliferation. The tobacco-less product has 450 times lower levels of toxicants in its vapors than can be found in cigarette smoke, but the U.K. recently chose to regulate e-cigs as a medicine, a far stricter label even though cigarettes themselves are exempt from the rules.

That's likely because manufacturers of other smoking-cessation products lobbied hard against the e-cigs. London-based GlaxoSmithKline (NYSE: GSK) sells Nicorette nicotine chewing gum in the U.S., while McNeil, the the manufacturer of Nicorette gum, patches, inhalers, and sprays, is owned by Johnson & Johnson (NYSE: JNJ) .

Nicorette has a 37% share of the U.K.'s smoking cessation market, and the growing popularity of e-cigs threatens that position because e-cigs are more for those who want to continue enjoying the pleasure associated with smoking while the competing products are for those who want to quit. There seems to be a preponderance of those favoring the former.

The EU actually voted last month in favor of regulating e-cigs under the less restrictive tobacco products rules rather than as a medicine, but as the documents uncovered by Totally Wicked show, the forces arrayed against the industry are still at work behind the scenes trying to undermine its growth.

And growing it is. As the Royal Society conference heard, there are an estimated 7 million e-cig users across Europe, double the number present just four years ago, and whereas Philip Morris estimates the global market for the product is currently around $2 billion -- half of it in the U.S. alone -- it's just a tiny fraction of the $800 billion worldwide tobacco industry. Their growing popularity and perceived health benefits could tilt the playing field in further favor of the e-cig and against other products.

The international tobacco giant also sees industry cigarette volumes falling an additional 2% to 3% next year, including 7% to 8% in the EU, and 9% to 11% in Russia. Compare that with the 25% annual growth rate the e-cig market experienced in just the past two years, and the better than 30% compounded growth rate analysts expect over the next five years, and the huge opportunity for the tobacco companies to offset cigarette losses is readily apparent.

That is, if the special interests represented by Glaxo and J&J don't persuade EU regulators to stub out their potential before they've even had a chance to really gain traction.

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The Eu authorities are forgetting that China makes millions of ecig devices and ecigs are easy to post. The costs (and impracticability) of policing private personal use importation will be huge.

And they are also forgetting that most current ecigs do not look like cigarettes at all, in fact there is little to prevent them being designed to look exactly like a wide range of legal to have items: pens, small flashlights, small calculators. And they are forgetting that evapour hardly smells, dissipates quickly - not that easy to detect.

And perhaps above all, they are forgetting that ecigs are not the product of a few, easy to regulate, virtual monopolies.

It strategy terms : ecigs vs the 'Authorities' has many of the characteristics of the classic insurgency problem-The EU authorities approach is wrong, it will have the opposite effect to what they want

Perhaps the most foolish thing the Authorities are doing is making claims such as 'ecigs are nearly as dangerous as smoking', 'ecigs are a path to re-normalising smoking' and 'that not enough research has been done'. The first statement is demonstrably, simply wrong, regularly inhaling organic smoke: combustion products, is extremely dangerous, ecigs do not burn anything, at all. And the claim that ecigs are somehow, a encouragement to taking up, Smoking is obvious incoherent nonsense. Ecigs are a alternative- a path away from smoking.

And the claim that not enough research has been done also doesn't really stack up that well- the two liquids that make up all but a small percentage of any eliquid are both food grade and the OH&s rules for handling both, in industrial quantities, are the same as for handling anything with no known toxicity. The other main ingredient- Nicotine, is a poison but only at concentrations much much higher that those found in eliquids. ( Nicotine is a bit more toxic than caffeine but not that much more)

In other words the authorities are trashing their status as impartial, Fair, Authorities in a increasingly public way. They are, inadvertently I hope, feeding a insurgency.